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Why Analysts Expect General Motors’ 1Q18 Margins to Disappoint

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Apr. 24 2018, Updated 9:00 a.m. ET

GM’s 1Q18 results

In the previous part of this series, we looked at analysts’ estimates for General Motors’ (GM) 1Q18 revenues. The company’s planned downtime at some of its North American plants and seasonal factors could hurt its revenues in the first quarter. Now, let’s move on by looking at analysts’ estimates for GM’s 1Q18 profit margins.

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Existing profit margin trends

In 4Q17, General Motors’ adjusted EBIT (earnings before interest and taxes) stood at $3.1 billion. With this, the company reported an adjusted EBIT margin of 8.2%, which was much better than its EBIT margin of 6.5% in 4Q16.

Similarly, GM’s adjusted net profits reached $2.4 billion with a net profit margin of 6.3%, also higher than its adjusted net profit margin of 4.5% in 4Q16. During 4Q17, positive product mix and lower production costs in North America had a positive impact on the company’s profit margins.

Estimates for GM’s 1Q18 margins

Analysts expect GM’s 1Q18 adjusted EBIT to fall 30.0% YoY to $2.4 billion, with a margin of 6.9%. This trend reflects a contraction from its 1Q17 adjusted EBIT margin of 8.2%.

Likewise, GM’s adjusted net profit margins are expected to shrink to 5.4% in 1Q18 from 6.3% in 1Q17. The lower contribution of retail sales in GM’s 1Q18 total US sales and planned production downtime could contribute to the forecast that GM’s 1Q18 profit margins could be subdued.

General Motors has higher profit margins than its peers Ford (F) and Fiat Chrysler (FCAU). However, Japanese auto giant Toyota (TM) maintains industry-leading (VCR) margins partly due to its relatively stronger premium vehicle portfolio in the global market.

Continue to the next part to see how General Motors’ debt position looks before its 1Q18 earnings.

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